Building God’s Temple & Lease Extensions: Are You Ready?
“King David rose to his feet and said: “Listen to me, my fellow Israelites, my people. I had it in my heart to build a house as a place of rest for the ark of the covenant of the Lord, for the footstool of our God, and I made plans to build it. 3 But God said to me, ‘You are not to build a house for my Name, because you are a warrior and have shed blood.’”
(1 Chronicles 28:2-3)
“If you fail to plan, you are planning to fail.”
Benjamin Franklin
King David loved God; they were tight. Towards the end of his life, he wanted to do something grand for God- so grand that he aspired to build the greatest temple in the world for Him! David shared this with Nathan, his resident spiritual advisor, and asked him to see if God would approve. Nathan inquired and relayed that God was not amenable to King David doing it; however, He told him that Solomon, his son and future successor, could build it.
King David did not use this as an excuse to sit on his hands. He asked God exactly what He wanted and proceeded to write down specific plans for Solomon to use. He not only detailed plans to build the temple and the surrounding buildings themselves, but for the all the items that would be kept in the temple. He mapped everything out precisely, even the weights of the lamps and tables and how the priests who would work there would contribute. All Solomon would need to do is dust off the plans and enact them when he was coronated. He would be ready to go!
For smart landlords, this is how lease extensions should be approached. When leases are expiring in the near future or tenants are proactively in contact about extending their leases, landlords should not be scrambling! A well-thought-out plan should be in place ready to be enacted.
As a Charlotte property manager, retaining good tenants is paramount. If we don’t hear from tenants prior to 80 days before their leases’ expiration, we start the “Lease Extension Plan”. This begins by running the nearby comparables to determine market price, checking their payment ledger to ascertain tenant quality, and making a recommendation to the owner on what we feel the lease extension price and terms should be.
Once we have finalized our lease extension offer, we e-mail it to the tenants somewhere between 60-75 days prior to lease expiration. This gives them plenty of time to ask any questions and make a decision. We also incentivize tenants to commit earlier as the proposed rental price is offered in tiers based on when they let us know their plans (example: “Let us know by 6/15, and the price will be $1,500.00/month… or if after 6/15, the price will be $1,600.00/month.”). We also offer options for month-to-month lease extensions (at a 10-20% premium to the existing rent based on current market conditions) and multi-year extensions (incentivized by allowing the rent to stay the same over the life of a longer lease term).
Other important factors we incorporate in the “Lease Extension Plan”:
- The new lease is written on the latest version to make sure that the owner has the best legal protection incorporating any recent changes to landlord law
- The tenant information is updated: Did anyone leave or is now joining the household? Did anyone get married/divorced? Name change(s)? New children? New pets to be accounted for?
- Are there any issues that we want to address with the tenant (or vice-versa) before we reup with them for another year or more?
Though King David was disappointed he would not be the one to build the temple, he made sure approved plans were prepared and ready when Solomon got the green light. Smart landlords will follow his example! With increased repair costs on rental home turnovers, keeping tenants by signing lease extensions is becoming more and more important to achieve rental home ROI.
Happy Landlording!
Learn More
Extend the Lease AND Sell? That’s Not “The Way”
“You can have it all.”
(1980’s Michelob Light Advertising Slogan)
I was (attentively) listening to a teacher’s presentation at my children’s school and she referenced the movie, Twister. I nudged my wife and whispered, “That movie is probably 20 years old now.” “Yeah, at least…”, she quietly agreed while discreetly double-pointing to the stage to redirect my attention back to (arguably) more important points of the on-going monologue.
But it got me thinking about older movies and Road Trip came to mind. In short, it is about a group of Ithaca College (NY) students racing against time trying to get across the country to the main character’s girlfriend’s dorm in Texas before her mail arrived. It was going to be close so they needed the quickest route to get there.
There was the route that took all interstates and would definitely be the safest way. But would it be fast enough? Preliminary math on the mileage didn’t look promising. However, there was another path that was more closely aligned with “how the crow flies” that would cut considerable time off of the trip. It would take them on unproven, side roads. It was the classic “risk versus reward”.
One of the quotes from the movie that I still remember is from the character, Rubin, when he was defending taking the unproven route:
“It’s supposed to be a challenge, it’s a shortcut! If it were easy, it would just be the way.”
The point that I take from this is that if something is straight-forward with the least amount of risk, it is “the way”. It’s a “best practice”; there is no short-cut needed. If they could have made it to Texas in plenty of time on the interstates, they would have been cruising in the fast lane there (though it would have made the movie less interesting…).
The way may be boring, but it is effective. And it requires good planning in advance.
As a property manager in Charlotte, we ask our owners approximately 75 days prior to lease expiration whether they want us to extend a tenant’s lease and for ideally how long of a time period (one year or multi-year). If the rental home is being kept as a long term investment, then “the way” is to offer to sign a lease extension for a long period of time. If the owner wants to sell it in the near future, “the way” would be to sign a shorter-term lease and/or let the current lease expire and go month-to-month until a notice to vacate is needed.
In a perfect landlord world, tenants would be in leases all the time (no vacancies!), but landlords could still sell the home and have the tenants vacate when the buyer wanted. But, alas, the world doesn’t work like that. We live in a world of tradeoffs.
A lease is legally binding regardless of who owns it. The main trade-off made with long term leases is that both the tenants and owner are sacrificing flexibility for security. The tenants now cannot move out (without incurring financial penalty) if Uncle Joe calls in a few months and offers a free house to stay in. They are stuck in a lease. And, on the same token, if the owner loses his job and wants to move back into the house, he cannot kick the tenants out and take the house back. On the plus side, the tenants can feel confident that their kids will be able to go to the same school for the life of the lease. And the owner can count on monthly rental payments.
There is security for both parties, but not flexibility.
You usually can’t have it all, no matter what Michelob Light says.
But what if the owner did extend the lease and then decided he wanted to sell the home right away? We still live in the United States of America and no one can tell someone they can’t sell an asset that they own. However, when selling, the prospective buyer would be purchasing the home SUBJECT TO the existing lease. In short, the buyer would be stuck with the tenants at the terms of the lease for its duration. For investors, that may be acceptable (or preferable!). For someone who intends to live there, not so much.
That’s when Rubin’s “shortcut” would be needed. And that is when it can be a challenge. Solutions include trying to find investors to buy the home subject to the lease, letting the tenants out of their lease and encouraging them to find a new house, and/or negotiating a financial settlement to entice the tenants to move. It can be tricky (and not always successful).
However, shortcuts sometime work out. The Ithaca students were able to get to the incriminating piece of mail before the girlfriend could get to her mailbox. But it was a stressful “road trip” and success didn’t seem likely during most of it.
I don’t know about you, but I generally prefer the calmness of the way; “boring” property management works well for me! It’s good to make lease extension decisions thoughtfully now to avoid having to take uncertain shortcuts later.
Happy Landlording!
Learn More